Tax toll on winnings

Guidelines for valuing prizes are hazy, read the terms and conditions carefully

With Kaun Banega Crorepati 4 going on air last week, diehard fans of Amitabh Bachchan have yet another opportunity to meet him. In addition, many stand a chance of becoming millionaires overnight. The only glitch is that the winner does not take the entire winnings home.

Under Section 194B of the Income Tax Act, 30 per cent tax is deducted on any prize money in excess of Rs 10,000 and other winnings from games, lotteries etc. This is deducted at source (TDS). Surcharge at the rate of 10 per cent is also payable. A two per cent education cess is payable on the tax plus surcharge amount.

The good news is that you are not responsible for managing the liability. “The onus of depositing TDS is on the payer (the channel). It will deduct TDS and pay the winner the net amount. It will also issue the winner a TDS certificate,” says Gaurav Gandhi, chief commercial officer, Viacom18.

You are only responsible for including this prize money under ‘income from other sources’ while filing your return. And, you must submit the TDS certificate as proof that you have paid all the tax due against the prize money.

Taxation on prizes in kind
A multitude of game/talent shows opt for a combination of cash and kind. The tax liability on cash prizes can be arrived at by a simple calculation, but this is not the case with prizes in kind. Although the applicable tax rate is the same, that is, 30 per cent, it poses a challenge on two fronts — who bears the tax liability and what is the valuation of the prize?

“If the prizes awarded are in kind, the channel will, before releasing the prize, ensure that tax has been paid in respect of the winnings. It will either recover it from the winner or bear the tax liability itself and deposit TDS,” explains Gandhi.

But if prizes are partly in cash and partly in kind, tax is deducted on the total value of the cash and kind from the cash. And, if the cash is insufficient to meet the TDS liability, either the winner or the channel pays the deficit. This will depend entirely on the channel’s terms and conditions.

Say, you win a car with a market value of Rs 7 lakh and the conditions require you to bear the tax liability. You will have to cough up Rs 2.1 lakh tax, Rs 21,000 surcharge and Rs 4,620 education cess. Then there are registration charges, road tax, octroi and insurance, which must be borne by the winner. The only alternative: Forego your award.

Guidelines for valuing prizes, including holidays, insurance products and even contracts awarded by channels to winners, are unclear. Homi Mistry, partner at Deloitte, Haskins & Sells, says, “The valuation will be largely circumstantial. For instance, to value a holiday, you may have to consider how much it costs an unrelated third party.”

Adding to your wealth
If you win a car or jewellery, these are considered assets. “An appropriate valuation of these must be done to check if you are crossing the current threshold of Rs 30 lakh. And, this will have to be done annually, till you continue to hold these assets,” says Vikas Vasal, executive director, KPMG. If you cross the threshold, the amount in excess of Rs 30 lakh is taxable at one per cent.